Autoliv, Inc. — Q2 2020 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods. Autoliv supplies automotive safety products, including airbags and seatbelts. The quarter was heavily affected by COVID-19 and customer plant closures.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $1,047.6 million | $2,154.7 million | $2,893.4 million | $4,328.7 million |
| Gross profit / margin | $14.4 million / 1.4% | $399.7 million / 18.6% | $345.4 million / 11.9% | $778.5 million / 18.0% |
| Operating income (loss) / margin | $(233.5) million / (22.3)% | $169.5 million / 7.9% | $(99.2) million / (3.4)% | $342.7 million / 7.9% |
| Net income (loss) attributable to controlling interest | $(174.7) million | $109.1 million | $(99.9) million | $220.5 million |
| Diluted EPS | $(2.00) | $1.25 | $(1.14) | $2.52 |
- Organic sales fell 47.8% in Q2 and 30.3% in the first half. Q2 sales declined 51.4% as reported, including a 3.6 percentage-point currency impact.
- Q2 adjusted operating loss, excluding capacity-alignment and antitrust items, was $171.4 million, or a 16.4% negative margin; first-half adjusted operating loss was $35.4 million, or a 1.2% negative margin. These are non-U.S. GAAP measures.
- Q2 sales were down organically in all regions except China, which grew 8.5%; Americas and Europe declined 66.6% and 58.3%, respectively. Global light vehicle production fell 45.2% in Q2, according to IHS.
Cash flow, debt and liquidity
- First-half operating cash flow was $27.8 million, versus $133.1 million in 2019. Management reported Q2 operating cash flow of negative $128 million, turning positive in June.
- First-half capital expenditure was $153.7 million, down from $236.8 million. Cash and cash equivalents were $1,223.2 million at June 30, up from $444.7 million at year-end.
- Total debt was $3,059.9 million and net debt was $1,837.9 million at June 30. Net debt was $188.1 million above December 31, 2019. The leverage ratio was 2.9x, compared with 1.7x at year-end; the company’s stated long-term target is around 1x, within a 0.5x–1.5x range.
- Management reported $1.7 billion of liquidity, including cash and committed unused loan facilities. Debt maturities were $218 million in 2020 and $275 million in 2021.
- The company canceled its Q2 dividend and suspended future dividends, subject to quarterly Board review.
Material changes and management commentary
- Q2 sales fell sharply as customer plants closed, particularly in the Americas and Europe; April sales declined organically 65% year over year, followed by improving but volatile production in May and June. Management said Autoliv’s sales declined slightly more than global vehicle production overall, despite outperforming production within each region, because of unfavorable geographic mix.
- Autoliv reduced headcount by 3,697 in Q2 versus Q1 and reported 61,800 employees and temporary personnel at quarter-end. It reduced personnel costs, furloughed staff, controlled inventory and cut discretionary spending and capital expenditure.
- The new Structural Efficiency Program (SEP2) targets approximately 900 additional indirect workforce reductions and $65 million in annual savings, with completion targeted for 2021 and estimated costs of approximately $65 million. SEP1 was close to complete; it reduced the indirect workforce by around 800, cost approximately $52 million and is expected to generate annual savings of approximately $60 million.
- Q2 capacity-alignment charges were $61.9 million; direct COVID-19-related costs were approximately $10 million. Management cited lower asset utilization and an uneven production restart as major pressures on margins.
- Autoliv withdrew its previously issued 2020 guidance and said it would not provide full-year indications until pandemic effects could be better assessed. It expected continued volatility and below-2019 vehicle production in the second half, with potential headwinds from lower inflator replacement sales and higher depreciation, alongside cost-saving and raw-material-cost tailwinds.
Risks, contingencies and unusual items
- Key risks include further COVID-19 disruption, volatile customer demand and production schedules, supply-chain interruptions, customer or supplier financial distress, and pressure on operating efficiency and liquidity. The filing also highlights competition, trade and geopolitical uncertainty, foreign exchange, product liability, warranty and recall exposure.
- For the Toyota side-curtain-airbag recall, Autoliv said its accrued amount for potential replacement-part costs was immaterial and that its expected net loss, after insurance, remained below $20 million. Ultimate costs could differ materially; allocation of responsibility, repair volumes and insurance or supplier recoveries remain uncertain.
- The company had $57.9 million in product-related reserves at quarter-end. It also reported approximately $6 million of liabilities to indemnify Veoneer for certain qualified electronics-product recalls.
- Autoliv had previously paid a €179 million (approximately $203 million) European Commission antitrust fine in 2019. Management said other pending legal matters were not expected to materially affect consolidated financial position, while noting that future litigation or product-related losses could be material.
- The filing reported no material impairment charges on long-lived assets in the periods presented and no reportable subsequent events through the filing’s stated review.
Important facts for investors to verify
- Whether vehicle production and customer call-offs recovered as expected, and whether Autoliv’s sales performance and margins improved after June.
- How quickly the cost reductions and SEP2 savings are realized, and whether restructuring costs or further capacity actions exceed estimates.
- Whether cash generation, liquidity and leverage remain manageable as debt maturities approach and dividends remain suspended.
- How COVID-19-related disruption, product claims and recall matters—including the Toyota recall—affect results, reserves and insurance recoveries.
- How reported GAAP results compare with management’s adjusted, non-U.S. GAAP measures; adjusted figures exclude capacity-alignment and antitrust-related items.